Ignoring a company’s stock price, what are the underlying trends that tell us a business has moved past the growth phase? when we see the fall return In conjunction with the decline in return on capital employed (ROCE) Base Of capital employed, this is often how a mature business shows signs of aging. This suggests that the company is not compounding shareholder wealth as returns are falling and its net asset base is shrinking. So after looking at the trends within Miscellaneous Holdings (NASDAQ: DSEY), we weren’t very hopeful.
What is Return on Capital Employed (ROCE)?
In case you haven’t worked with ROCE before, it measures the ‘return’ (pre-tax profit) that a company generates from capital employed in its business. The formula for this calculation on Diversified Holdings is:
Return on capital employed = Earnings before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.027 = US$88m ÷ (US$4.3b – US$996m) (Based on last 12 months till December 2022),
Thus, Diversey Holdings has a ROCE of 2.7%. Ultimately, this is a low yield and underperforms the chemical industry average of 11%.
View our latest analysis for Diversi Holdings
roce
In the chart above, we’ve measured Diversey Holdings’ past ROCE against its past performance, but the future is arguably more important. If you want to see what the analysts are predicting next, you should check out our Free Report for Diversified Holdings.
What the trend of ROCE can tell us
There is reason to be cautious about diversification holdings, as returns are trending downward. Unfortunately, the return on capital has come down to less than the 4.5% they were earning four years ago. And on the capital employed front, the business is using roughly the same amount of capital as it was back then. Companies that exhibit these characteristics do not shrink, but they may mature and face pressure on their margins from competition. If these trends continue, we would not expect Diversi Holdings to turn into a multi-bagger.
What We Can Learn From Diversey Holdings’ ROCE
In short, it is unfortunate that Diversi Holdings is generating lower returns than the same amount of capital. Despite the related underlying trends, the stock is actually up 6.0% over the past year, so investors may be hoping for a reversal of trends. Either way, we are not a big fan of the current trends and hence we think you may find a better investment elsewhere.
There are some risks in Diversi Holdings though, and we’ve seen 1 Warning Sign for Diversified Holdings In which you may be interested.
While Diversey Holdings Isn’t Earning the Highest Returns, Check It Out Free List of companies earning high return on equity with solid balance sheets.
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This Simply Wall St article is general in nature. We only provide commentary based on historical data and analyst forecasts using an unbiased methodology and our articles are not intended to provide financial advice. It is not a recommendation to buy or sell any stock, and does not take into account your objectives, or your financial situation. We aim to bring you long term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall Street has no position in any of the stocks mentioned.
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